CHAPTER XXIV CASE OF THE FR NCH COMPANY OF VENEZUELAN RATLROADS HIS case is one of considerable importance, relating to the com- T plete destruction of a railroad property in Venezuela, the con- struction of which had cost over $8,000,000 gold. Upon a difference of opinion between the Venezuelan Commissioner and the French Commissioner, the claim was referred to the Hon. Frank Plumley, of Northfield, Vermont, for his arbitrament. For the benefit of railroad men throughout the United States and of American capi- talists who contemplate making investments in Latin America, a report of Umpire Plumley's opinion follows. ‘The opinion was ren. dered in 1905. I. Oprvion or tHe Umpre July 25, 1887, the Minister of Publie Works of the United States of Ven- ezucla, duly authorized, executed a contract with the Duke of Mory, a French citizen, which contract was duly approved by the Congress of that Rte- public August 3, 1888. It contained provisions which are summarized by the umpire as follows: The government of Venezuela conceded to the party above named the right to build a railroad from Merida to the Lake of Maracaibo, canalizing the river Chamas, the Escalante, or any other navigable river whatsoever: the exploitation and the enjoyment of the revenues of the enterprise for a term of ninety-nine years; a strip of 500 metres of land on each side of the railroad track, without payment therefor, to be taken from the lands of the nation; the right to avail himself of the lands belonging to individuals which might become necessary for the construction of the railroad, stations, and the like, in con- formity with the laws governing the taking of lands for public use, and subject to compensation therefor; the wood and timber necessary for the construc- tion of the works to be taken from the national forest without compensation therefor; the right to introduce into the country free of import duties the engines, material, instruments, and everything necessary for the construction of the line, subject only to proceeding in reference thereto in conformity with the provisions of Article 177 of the Code of Finances; the right of exemption from assessments at all times by the nation and the State; a right to extension of the time allowed for the beginning and the completion of the works when delay was caused by force majeure, the entire extension not to exceed one year; # guaranty of seven per cent on the capital in shares, bonds, or obligations.THE FRENCH RATLROAD CASE 335 the right to construct such branch lines as he should deem necessary; the privilege of transferring the contract thus executed to any other person or company at his pleasure on notice to the Venezuelan government. ‘The Duke of Morny obligated himself in said contract, to begin the said railroad and the canalization of the river, in case it be necessary, within one year from the date of the contract and to finish the line in three years there- from; to yield up to the government of Venezuela at the expiration of the said ninety-nine years without indemmity therefor, the enterprise with all its the mail free of charge; to transport for one t governme joldiers, troops, to the resolution by the competent tribunals of the Re- th its laws, of all doubts and controversies which might ise oan i contract. August 13, 1888, certain declarations and amplifications to the foregoing were made by General Cuzman Blanco, Envoy Extraordinary and Minister Plenipotentiary for Venezuela, to and with the said Duke of Morny, which are summarized by the umpire as follows: The government of Venezucla thereby and therein conceded to the other party that the railroad from Merida to Lake Maracaibo was to be divided into two sections; the first section was to start from a point upon the river Escalante, which point the concessionaire was to determine, and to be continued for a length of sixty kilometres in the direction of Merida; the second section was to start from the terminal point of this first section and continue to the city of Merida; an extension of the time fixed in said modification of the contract for the building of the first section equal to the delay suffered, if the delay was caused by force majeure; the guaranty of seven per cent provided for in the original contract to begin when the first section was opened for exploitation; an extension of the time fixed in this modification to the original contract for the building of the second section was to be made equivalent to the delay suffered, if the delay was caused by force majeure; establishing the capital at an estimate of 300,000 Bs. per kilometre for the first section and at 350,000 Bs. per kilometre for the second section, the guaranty of seven per cent to rest upon the amount of this estimate; to pay the said guaranty in three equal parts at equal periods during the year; to add to the material which was to be imported free of duty under the terms of the original contract, the engines, material, and instruments necessary for the running of the railroad; and that during the period of twelve years from the date of the said modification of the original contract the government would not establish a service of navigation to carry on traffic between the terminal point of the railroad, or any points upon the Escalante, and the different ports of the Lake of Maracaibo. ‘The concessionaire was obligated therein: to begin the work of building the first section of said railroad within six months from August 18, 1888, and to complete the same within two years therefrom; to complete the construc- tion of the second section within four years from the date named; and to introduce the material, which was to come in duty free in conformity with the provisions of the Law of Finances provided for in such matters. April 16, 1891, further modifications of the contract were made by the Congress of the United States of Venezuela by and with the representative of the French Company of Venezuelan Railroads, which latter had succeeded to the rights of the original concessionaire, which modifications are summarized. by the umpire as follows: ‘The Republic ratified in behalf of said company336 AMERICAN SUPREMACY the contract of August 13, 1888, and confirmed the original contracts except where they were contrary to the conditions named in that modification. The company renounced and declared null and void Article X of the contract of August 13, 1888, which gave exclusive navigation privileges on the river Escalante and the different parts of the Lake of Maracaibo. It was mutually stipulated that the concession was to be limited to the first section, which was to extend from Santa Barbara to Camino Real, a point one kilometre distant from La Vigia; the guaranty of seven per cent was to be reduced by the amount of the net benefits received by the company, these being composed of the net product of the receipts of every nature made by the exploitation of the railroad after deducting the general expenses of the company and of its management; the sums paid on account of said guaranty to be treated as advances only, to be returned as and when the benefits received by the company exceeded seven per cent on the guaranteed capital by applying one half of such excess in liquidation of said advances until all was reimbursed; that after said advances had been fully reimbursed the government was to continue to share in said benefits to the extent of twenty per cent thereof. There was added to the provision in regard to the resolution of all doubts and controversies by the ‘Tribunals of the Republic, the further agreement that in no case were these doubts and controversies to give place to international claims. It will be observed that by the modification of the original contract made August 13, 1888, the capital of the company, for the purpose of reckoning the guaranty, was estimated at Frs. 18,000,000. Following this arrangement a French company was formed, September 28, 1888, taking the name of French Company of Venezuelan Railroads, with headquarters at Paris and its duration limited to ninety-nine years. The con- cessions obtained by the Duke of Morny were taken over by this company. ‘The building of the road was in progress from 1889 to 1892. It is complained by the company that on April 16, 1891, the government, by the rule of the stronger, compelled in the agreement of that date, the pro- visions of which have already been stated, the introduction of the clause into the original contract that there was to be deducted from the amount of the guaranty the actual net profits of the company. September 29, 1891, the first section was nearly completed and about ready for use, when there occurred a very serious inundation, causing a considerable delay and the expenditure of a large sum of money to reconstruct the parts destroyed. It was April 1, 1892, when the company considered the work of construction completed and demanded of the government its acceptance. But the State of Andes was then in revolt, while that of Zulia was loyal to the titular government. A portion of the railroad was in each State. To whom should it apply? Which was its government ? August 5, 1892, the company made publication in the local papers of the fact of the completion of the railroad and that it had begun business. ‘The company suffered badly from the insurrection, in requisitions from both sides, in the dispersions of its workmen, in the disappearance of its traffic, while the government in the midst of this intestine war paid neither requisitions, damages, nor guaranties. 'The line was repaired from the re- sources of the company, but it thereby exhausted its capital, and, November 1, 1892, judicial liquidation resulted. ‘The creditors accepted the proposition made by the company to pay them pro rata and permitted it to continue its enterprise.THE FRENCH RAILROAD CASE 337 February 23, 1893, the engineer of the government examined the line and declared it to be well constructed and advised that by April 1, 1893, it would be in a situation to be accepted by the government. March 23, 1898, the decree of inauguration was published, and on May 10, 1893, the record was made of its definite acceptance by the Venezuelan government, dated back to April 1 of that year. As a matter of fact the line had been in operation since 1892, with receipts for that year aggregating Frs. 149, 241.21; for 1898 the receipts being Frs. 570,061.87; and in 1894 they were Frs. 458,525.24, An earthquake in 1894 did great damage to the roadbed and to the bridges, which requires ditures to restore. ‘The receipts through its traffic were insufficient to meet these expenditures, and the national government, though repeatedly urged so to do, paid neither guaranties, nor indemnities, nor requisitions. At the general meeting of the shareholders of the company held June $0, 1894, its reports showed a claim against the Venezuelan govern- ment amounting to Frs. 2,205,000. In fact, the repairs which were required by the earthquake had been made only by the issue of bonds of the denomina- tion of 500 francs drawing interest at six per cent to be reimbursed by the sums to be received from the respondent government. On June 20, 1895, the report to the general meeting of the shareholders showed a claim against this government of Frs. 5,820,785.47. In 1894 the company issued eight hundred of the bonds, and in 1895 it made a further issue of four hundred. In the month of December of this last-named year requisitions by the national government began again; the financial condition of the company became more strenuous. It sought diplomatic aid through its own government, but obtained no results. December 31, 1895, it claimed of the government of Venezuela as follows: For guaranty to December $1, 1895... 2... ee eee Bs. 4,725,000.00 Damage to the exploitation ©... 2 2 ee 326,924.75 Damage for recruiting its workmen 525,509.57 Requisitions... 2. ee ee . 96,320.00 Damage resulting from the non-payment of the guaranty for the issue of bonds... ee 1,308,000.00 Detal t t Bs. 7,051,751.82 ‘The years 1892 to 1894, both inclusive, were involved more or less in the successful Crespo revolution. It was on February 20, 1894, that General Crespo became Constitutional President of the Republic for a term of four years. But it was not until the year 1895 that his authority was everywhere recognized, and up to that time there were occasional revolutionary outbreaks entailing large expense upon the government and lessening and interrupting its sources and means of revenue. The answer of the national government to the repeated and urgent requests of the company for the recognition and payment of its credits was always a lack of funds, of which fact there could be no real denial. The respondent government had not, however, agreed to the sums demanded of it by the company. By 1896, the financial condition of the national government had greatly improved, and in April of that year, together with Mr. Charles Weber, the duly constituted representative of the French Company of Venezuelan Rail- roads, it took up the claims of that company. Substantially the same figures were presented to the respondent government as have been here produced of vou, 1—22338 AMERICAN SUPREMACY date December $1, 1895. The consideration and discussion of these affairs resulted in-a formal convention made April 18, 1896, when was brought in first a rehearsal of the salient matters of the previous contracts and then the statement of the claim of the company against the respondent government. In June, 1898, there was a new revolutionary movement affecting espe- cially the States of Zulia and Andes, The general in charge of the Federal forces drafted the workmen; the director, Mr. Brun, was shot at Santa Bar- bara in the midst of a conflict, and died of his wounds; there were requisi- jions of material, of trains for the transfer of troops, of war material, ete. The passenger and freight service was paralyzed; the claims of the railroad received no attention from the government; there was no payment for the services and sacrifices required of and imposed upon the company, and its very existence was seriously threatened. It appealed to its own government, it rehearsed its wrongs and grievances, but it obtained no relief. Just as the exploitation began again to yield some income and the revenues of the national government began to quicken, the successful revolution of General Castro broke out. Requisitions were again in evidence, and more than ever before. Destruction was manifest on all sides; grave losses were caused to the boats; while the revolutions took from it its traffic the government made requisitions, and neither paid anything. ‘This successful revolution of General Castro, which began in the spring of 1899, brought serious disaster to the railroad in many ways. A letter of date October 12, 1899, to the French Minister of Foreign Affairs by Mr. Reynaud of the Administrative Board, vividly portrays the situation. Selections there- from are quoted: “The political and revolutionary crisis which exists in Venezuela has not diminished in intensity since the last communication which we had the honor of addressing to you August 28, last. “Our property and all our possessions, our railroad material, and our boats have not ceased for several months to be arbitrarily seized or sequestered by the authorities, now said to be legal, now revolutionary. The future of the exploitation of our railroad and boats is grievously compromised in the source of its receipts. “The harvests are destroyed, abandoned, or lost; the workmen are pursued and tracked in the forests; the owners and merchants in flight or ruin! “Finally our resources are exhausted. “We have been obliged then to suspend our exploitation !” It was two days anterior to the date of the above letter that Mr. Simon, general manager of the railroad, informed the citizen President of Zulia in writing that “because of force majeure” all operations of the steamers, and of the railroad from Santa Barbara to La Vigia, were suspended. In this com- munication the force majeure referred to is thus explained : “1, All the resources which the company had, whether at Paris or at Maracaibo, have been completely exhausted in paying the expenses of this railroad and its steamer, Santa Barbara, during all of the revolutions, and then the Venezuelan government and the insurgents used these means of transfer until little by little they became masters of them. “2. Since September 27, 1899, the revolutionists have again taken pos- session of the line, and, consequently, we can have no receipts except from our steamers, and of these the government is constantly taking possession.THE FRENCH RAILROAD CASE 339 “3. AN our efforts with the national government at Caracas, as well as with the government of Zulia, to recover the large sums which they owed the company, have had no success, not even for the little sums of 300 and 144 Bs, which were to be paid October 3, 1899. “4, In these conditions, if the company continued the exploitation it would be obliged to go into bankruptey. “5. It suspends its exploitations, without renouncing ‘its rights, on that account, wpon the concessic e railroad from Santa Barbara to until the 99 between ihe French company ge ernment. A communication to the same effect was sent to the national government through its Minister of Public Works. In it Mr. Simon stated that the revo- lution had made it impossible for the railroad to receive any benefit during the months of June, July, and August. It was there stated that in September there was a suspension of hostilities and there were some receipts; but that the new revolution broke out September 27, since which time the traffic had ceased. The use of the steamer plying between Santa Barbara and Mara- caibo had terminated because of the order of the customs officer forbidding its use and of the confirmation of the same by the President of the State. ‘The situation is there summarized by Mr. Simon as follows: “1. Itis not possible for the exploitation to gain any receipts, since the revolutionists are masters: and up to this day, October 10, there is not hope that the government can retake this city. “2. The Venezuelan government cannot pay the company any of its debts nor even give it an account, nor make any promises for the future. “8. The company has no longer any resources, having exhausted every- thing by which it may meet expenses of the line, while it has made no receipts because of the frequent revolutions. “Considering that this state of affairs has caused it prejudices and enor- mous damages, and that if it continued its expenses it would be led into bank- tuptcy, the company sees itself, because of force majeure, obliged to suspend the exploitation of its line and its steamers until a settlement may be made with the national government of the United States of Venezuela, that the com- pany does not abandon its right upon the concession of the said railroad from Santa Barbara to La Vigia.” October 22, 1899, by communication of Mr. Simon to the company at Paris, it is learned that the archives and records of the company had been locked up in the safes and a detailed inventory had been given the consular agent of France at Maracaibo, that the entire personnel of the boats had been paid and discharged, and the copy of the notice to the public which had been given it through the newspapers was therein remitted. It is added that: “The lack of income during more than four months, together with the revolutions and lack of payment by the government of its obligations to the company, are the reasons which lead the company to ask for a settlement with the national government before continuing anew the exploitation. “Tt appears that since the 27th of September the railway is in the hands of the insurrectionists, and that until this date, October 12, there is no hope that the government may recover this place.” ‘The government of France through its foreign office directed its consular agent at Maracaibo to safeguard the interest and properties of the railroad company during its suspension of activities,340 AMERICAN SUPREMACY December 2, 1899, there was an armed conflict on the shores of the Bay of Maracaibo between the forces of General Castro and those of General Her- nandez, A steamer of the company, the San Carlos y Merida, was lying at anchor in the bay, and the armed forces were so situated toward one another that the steamer lay in their line of fire. As a result, the damage to the hull of the steamer was so serious that it sank during the afternoon of that day. ‘These facts concerning the steamer are taken from the report of the French ular agent at Maracaibo in a communication made by him, of date De- cember 30, 1899 January 2, 1900, the appraisers, specially appointed for the purpose of estimating the damages suffered by the Santa Barbara while in the service of the national government, made their report, naming these damages at 10,000 Bs. January 18, 1900, the French Company of Venezuelan Railroads ad- dressed the Minister of Foreign Affairs of France, and referred to its commu- nication of the previous month to the same official, and asserted a claim. . . . February 3, 1900, the railroad company addressed itself to the President of the Republic of Venezuela, informing him of the grave disasters which had overtaken the company, and declaring that any considerable delay in the settlement of the sums due it from the national government might prove fatal. January 18, 1901, the French Company of Venezuelan Railroads, having received no payment from the respondent government and no encouragement that payment would be made, came to believe that its efforts were forever compromised; and it then presented to the French Minister of Foreign Affairs a claim for Frs. 18,000,000, the ensemble of the losses which the action of the respondent government was held to have brought upon it. ‘To this was added the service of the boats which had been destroyed or injured and a part of the material of the dredging-machine which had been stolen, making a total of 483,900 francs, deduction having been made of 11,100 Bs., that sum being the price for which the Santa Barbara and the launch had been sold. This claim was brought to the attention of the Consul General of Venezuela at Paris, whose response was that the new President up to that time had been able to concern himself only with matters political and martial... . In behalf of the company there is also presented by Counsellor Decraigne, in his very able and valuable brief, the claim that it was ruined at the hands of the respondent government; that this ruin was practically consummated by what he is pleased to denominate the culpable removal of the guaranty. He insists that the exchange made between the company and the government was without any equivalent, and was brought about only by such pressure that it was invalid and should be declared a nullity. He also asserts that it should be declared a nullity by default of execution, since the respondent government has not paid the arrears of the titles which it has given the French company in exchange for its guaranty. The respondent government, as the essential part of that exchange, was to furnish titles bearing five per cent interest, the titles having no other value than their interest-bearing qualities. ‘The interest not being paid, the titles were without value; hence there was in fact no considera- tion for the surrender of the guaranty by the company; and the respondent government having thus failed to perform that which was essential in the con- tract for the surrender of the guaranty, the company has a right to demand the rescission of that portion of the Convention of 1896. He includes in the right of rescission a claim for damages in behalf of the company, which is in theTHE FRENCH RAILROAD CASE 341 nature of a reimbursement of all the expenses which have been imposed upon it, with interest at seven per cent. He urges that the guaranty be liquidated from May 10, 1893, up to the date of this award, less the sums paid thereon, with a charge of seven per cent interest annually for the default. The claim for Frs. 18,000,000 is presented on behalf of the company in another view. ‘The reasons given are that the respondent government, by requisitioning the material and the personnel of the company, property. ‘The government had power to t: J for it. ‘The damage thus consu amated is estimated at pany be reimburse ress of Venezuela in i891, which, it is u: the price set upon it by the Co is the amount of the claim here presented. Summarized, then, the claim of the French Company, as presented by its ed, counsel, is as follows: “1. For the loss of its line the sum of Frs, 18,000,000; with interest at seven per cent upon the capital of 15,000,000; “2, For the loss of its maritime exploitation the sum of 483,000 francs with interest at seven per cent; the interest on both of these items should be reckoned from March 23, 1893. . . .” ‘The French Company of Venezuelan Railroads contends for an allowance of Frs, 18,483,000 (a) on the basis that the Venezuelan government is respon- sible for the ruin of the company, and that in equity this responsibility car- ries with it the rescission of the contracts signed between the said company and the respondent government as stated in the first paragraph of the opinion of the Honorable Commissioner for France; (b) on the basis that the French Company of Venezuelan Railroads renounces the concession of the enter- prise and abandons to the Venezuelan government its line, its buildings of exploitation and habitation, its stores, and its terrestrial and maritime material, in the condition in which they are found, by means of which — payment on the one hand, renunciation and abandonment on the other — the two parties will perform all their reciprocal obligations and engagements, as stated in the record of the proceedings of the Honorable Commission at Caracas in defin- ing the position of the Honorable Commissioner for France in regard to the said claim. These two statements of the claim, although differing in form, are understood by the umpire and will be treated by him as, in essence, one and the same. In event of failing to impress this view upon the Honorable Commission, the company asks for a large allowance in the way of deferred guaranties and other losses, together with an allowance of the sums approved and accepted by the Honorable Commissioner for Venezuela. In order to reach the con- sideration of these deferred guaranties it urges upon the Honorable Com- mission the duty to declare that portion of the convention of April 18, 1896, which refers to the redemption of the guaranty, to be null and void because it was obtained in a manner so conscienceless that it cannot be sustained in the forum of equity. If this view is upheld, the Honorable Commission is asked to pass in detail upon the elements composing this claim. To take these several propositions in their order, it becomes necessary to consider first the claim of Frs. 18,483,000, which is the sum demanded pro- vided the umpire decides in favor of the rescission of the contract. It would seem to the umpire that the question first occurring is one of jurisdiction, in other words, of competency. For, however deeply the sym. pathies of the umpire may be stirred in behalf of those who have bravely strug-342 AMERICAN SUPREMACY gled and who have seriously lost, there is an imperative duty which is primary. That duty is to determine the limits which circumscribe him and keep him within the set and required bounds. ‘The limits of this Honorable Commission are found, and only found, in the instrument which created it, the protocol of February 19, 1902. An arbi- tral tribunal is one of large and exclusive powers within its prescribed limits, but it is as impotent as a morning mist when it is outside these limits. A ref- erence to the convention which created this Commission will disclose its pur- pose and purview. .. The sole scope and sweep of the authority given is to provide indemnities for damages suffered by Frenchmen in Venezuela. It is not defined, but it is assumed that its methods of procedure will not contravene the general and established principles of the law of nations, nor its awards be opposed to justice and equity. This much can be assumed, but to assume that it has power to revoke, rescind, modify, or limit the terms of a contract, even so much as by a hair's breadth, is impossible. It was created for no such pur- pose; it was endowed with no such powers. So far as a Frenchman has suf- fered damages in Venezuela for which Venezuela is responsible, the indemnities may be stated and the decision be final. The arbitral tribunal thus con- stituted may, as a means to the end provided, ascertain and declare the responsibility of Venezuela, it may pass upon its own jurisdiction within the scope of its charter, but it cannot step in the least outside the path prepared for it, which is and only is the path which leads from damages to indemnities. If the French Company of Venezuelan Railroads and the respondent govern- ment did but agree that rescission should be had, or that abandonment should be made of the concessions and the properties of the company to Venezuela, then this Honorable Commission might be considered competent to pass upon and establish the indemnities thus required. Otherwise there is incompetency absolute and entire. This commission is not only destitute of primary author- ity, which is enough, but it is equally destitute of all capacity to compel the parties to carry into effect any such award were it made — which is more. ‘The contracts in issue were mutual and reciprocal, and neither party thereto can make abandonment thereof without the consent of the other. The United States of Venezuela does not consent; therefore the French Company of Venezuelan Railroads cannot, by right, abandon its contracts or its properties. If it be held that the respondent government has wrought the utter ruin of the company, and that this was done in a manner and by means which charge upon the nation the full measure of responsibility, then there is a case for damages only, and the sum awarded might be — it is not said would be — the sum of Frs. 18,483,000, the amount claimed. But it is always and only on the basis of indemnities for damages that this Honorable Commission has juris- diction; and it is utterly powerless, even for good cause, to decree an un- accepted and unacceptable abandonment by either party of a mutual and reciprocal contract, or to award an act of rescission which has not, in effect, previously taken place. The umpire finds ample warrant for his conclusions regarding his powers in the authorities to which he makes reference. . . . For this Honorable Commission to order something to be done which would cause damage to the party obeying the order and then to award damages therefor would be opposed to the terms of the convention. It would be anTHE FRENCH RAILROAD CASE 343 independent act posterior to the convention; and were this to be done by the umpire it would require a payment by Venezuela to the claimant company for damages in fact sutfered in the United States of America at the hands of the umpire... . ‘The umpire cannot entirely ignore the restrictive features of the contract between the claimant company and the respondent government which in all doubts and con- by the competent ly to consider and determine 1s doubt, the most important A troversies arising from that contr tribunals of the respondent ie the damage has accrued “trom n the operation of the parties under ‘the contract, but the question of its rescission is an entirely different proposition. ‘The unrestricted agreement to submit to an arbitral tribunal the question of damages suffered by Frenchmen in Venezuela may properly be considered, if necessary, as equivalent to a suspension of the provision in the contract, were the damages claimed to be such as arose or grew out of the contract; but the agreement to submit a question of damages arising through operations per- formed under a contract in no sense suggests a purpose to arm that tribunal with plenary power to consider and settle the question involved in the rescis- sion of a contract, and therefore does not suggest an intent on the part of the High Contracting Powers to ask on the one hand or to grant on the other the suspension of the restrictive features referred to, which are contained in said contract. What is here said concerning the matter of rescission applies with equal force to the matter of abandonment. It is, therefore, the deliberate and settled judgment of the umpire that he cannot determine this claim on the basis of a declared and directed rescission or of abandonment, and can only decide the amount of the award, this to depend upon the ordinary basis of damages which have been suffered in Venezuela by the French Company of Venezuelan Railroads at the hands of those for whom the respondent govern- ment is responsible. By the claimant company the redemption of the guaranty as settled by the compact of April 16, 1896, is declared void in equity, (a) for want of adequate consideration and as being made against the desire of the company and under the irresistible compulsion of circumstances which were availed of by the respondent government to drive a bargain so hard and so unconscionable that it should be set aside by this tribunal; (6) as a default of the government in neglecting to meet its obligations of interest as they fell due upon the bonds which were given to redeem such guaranty, being a total failure to comply with and carry out the terms of that agreement which renders the agreement itself nugatory and void; and for these reasons the rescission thereof should be declared by this Honorable Commission. ‘The agreement effected to redeem this guaranty of the French Company of Venezuelan Railroads was only a part of a general plan introduced by the United States of Venezuela in 1896, to be made applicable to all similar enter- prises wherever located in that country and by whomsoever exploited. To this end it had arranged with the noted and conservative German House, the Disconto Gesellschaft, to float a loan of Bs. 50,000,000, secured upon the customs houses of the nation and bearing five per cent interest annually, the proceeds of said funds to be devoted to the purpose named.344 AMERICAN SUPREMACY Tt was accepted generally by the different guaranteed enterprises, the claimant company being one of the several. Examination of the reports made by the company to the shareholders at its annual meetings for the years 1894, 1895, and 1896, shows a successive and continuing ability on the part of the claimant company to raise money by loans. June 27, 1896, was noteworthy in this regard, since at this annual meeting successful provision was made for floating a loan of Frs. 1,800,000. In 1895, the year preceding the redemption of the guaranty, there was raised by loan Frs. 200,000; and in the year 1897, a year and more succeeding the settlement, there was negotiated a loan of Frs. 1,500,000. Hence it was Rot an overwhelming financial necessity which confronted the company, nor an utter inability to obtain money otherwise, which compelled the acceptance of the offered redemption. ‘The redemption of the guaranty on the terms provided did not mean, on the part of the claimant company, the relinquishment of Frs. 1,260,000 annually for the sum of Frs. 2,500,000 in hand. It was only the relinquish- ment of such sum, if any, as might remain when the net annual revenue was deducted from this annual guaranty, ‘The net revenue had been growing for the years prior to April 16, 1896. In 1894 it was Frs, 72,882.15; in 1895, Frs. 101,676.97. Both parties had contemplated and apparently believed that it would finally exceed the guaranty and had provided for that contingency, as will be seen by reference to the contracts which arranged to meet and eventually to cancel the guaranty which had theretofore been paid, directing that one half of the net annual revenue in excess of 126,000 franes be used in payment, and also agreeing that after the said advances had been cancelled fully, the respondent government should continue to enjoy twenty per cent of such excess in perpetuity. By this redemp- tion the right of Venezuela to participate in any way in the net profits of the company was cancelled. That this right was considered as of some value is evident, or it never would have been placed in the contract. In fact, by its terms the annual guaranty was only an advance, an indebtedness of a peculiar character, payable only in certain contingencies and in a particular way; but still it was an indebtedness. By the agreement constituting the redemption these conditions were all changed, to the effect that the arrears then provided for and the Frs. 2,500,000 then paid were not debt-producing but debt- reducing. They were gifts, purely and simply, so far as any duty of repayment was concerned. In another sense they were not gifts. ‘They were the nation’s estimate of the value of the railroad and the steamboats to its commerce and to its agriculture, also to the means of communication between different parts of the country. The transaction itself was open, the negotiations lengthy, the time for reflection ample. 'The co-operation of the directors of the company and of the representatives of the creditors was solicited and received, and all was done with due deliberation, under circumstances which permitted entire freedom of will and of action. The approval just mentioned took recorded form on June 27, 1896, after a lapse of more than two months and after a full and explicit report of the action taken with the reasons therefor fully set forth. It was referred to approvingly at the annual meeting of 1897, and on June 30, 1898, two years and two months after the agreement of redemption was made, the bonds which had been issued in accordance with that agreement were appropriated by the deliberate action of the company to the payment of a special indebtedness,THE FRENCH RAILROAD CASE 345 ‘They were accepted by two of the vigilant and sagacious financial houses of France in place of the obligations of the company. There are apparent none of the features which accompany and signalize bargains which the courts undertake to set aside. The freedom of contracts is one of the bulwarks of business, and courts are loath ere where a contract is executed, and whe lacking the elements of frau i and where it rests upon the mutual assent of parties int competent, and free to contract... . The final appropriation mption fund after such length an offer to restore the olemn a of doubt; while the absorption of the funds precludes return. There is also no offer to restore. If there were such offer, this Honorable Commission has no power to compel its acceptance. . . ‘The umpire is unable to accept the contention of the claimant company that the respondent government was the sole cause of its ruin. This is no- where asserted, or even suggested, by its agents and managers during the progress of the events which culminated in its suspension nor until the lapse of many months thereafter. It is entirely opposed to the expressions of Mr. Reynaud of the Administrative Board of the company in his careful and analytical statement of the claims of the company on February 3, 1900, since which time it is not claimed that there is to be found any direct injury received from the respondent government unless it occurs in its delay to pay its debts. The claim then put forth was (a) payment of $00,000 francs as the full amount due for expenses of transportation and requisitions on account and by order of the authorities of the nation and the States; (b) payment of the sum of 250,000 francs estimated as the minimum amount of the indemnity due for damages which had been occasioned upon its property; (¢) the sum of 105,000 francs a month, on account, from July 1, 1899, to indemnify the company for the loss which it had suffered since that date from the almost absolute suppression of its traffic and for the immobilization of its railroad and boats. ‘This sum is obtained by taking the amount originally stipulated as an annual guaranty, viz., 1,260,000 francs, and dividing it by 12, the number of months in a year, the quotient being 105,000 francs. This communication from its authorized agent must be taken as the voice of the company speaking its honest and deliberate convictions and asserting its claims in their most broad and comprehensive sense. This statement was made when all the facts were fresh in the minds of both parties and when there were no reasons for concealment, reservation, or dissimulation. The umpire will accept it as the maximum of the claimant company’s demands for those matters which had occurred at that time. He will allow so much of the 300,000 francs as he ascertains to be well founded. He will grant so much of the 250,000 francs as is determined to exist in a claim properly attributable to the respondent government, He will allow nothing of the claim for 105,000 francs a month, as he finds no lawful responsibility in the respondent government. It cannot be charged with responsibility for the conditions which existed in 1899, prostrating business, paralyzing trade and commerce, and annihilating the products of agriculture; nor for the exhaustion and paralysis which followed; nor for its inability to pay its just debts; nor for the inability of the company to obtain money otherwise and elsewhere. All these are misfortunes incident